Market concentration is creating 'fragility': Only 60% of S&P 500 stocks are above their 200-day average

With stellar earnings powering stock indexes to all-time highs, Wall Street now wants to see the market broaden.

“Any time you have narrow leadership, despite what is doing the leading, it just creates more of a fragility in markets in general,” Matt Stucky, Northwestern Mutual Wealth Management chief portfolio manager, told Yahoo Finance last week.

“That growth in the fundamentals, even though it’s broadened some, it is showing up in more concentrated markets today,” he added.

The main driver of the stunning V-shaped recovery from the March 30 lows has been semiconductor stocks, especially memory makers.

When Micron ( MU ) crossed the $1 trillion market cap for the first time this past Tuesday, it became the 11th-largest US public company by market value , behind Eli Lilly ( LLY ) and ahead of Walmart ( WMT ). Its sharp rally that day accounted for 18 of the S&P 500’s ( ^GSPC ) 45-point gain, according to data from Bespoke Investment Group.

“Semiconductor and memory-related stocks have experienced parabolic advances,” said Adam Turnquist, chief technical strategist at LPL Financial.

“While overbought conditions alone are not necessarily bearish, the probability of near-term profit taking or rotational activity appears to be rising as investor positioning becomes increasingly crowded,” he noted.

Turnquist pointed out that only about 60% of S&P 500 stocks are trading above their 200-day moving average, below the historical average of roughly 73% when the index is hitting new highs.